NEWS & INSIGHT

The Four Pillars Driving Adoption of Electric Vehicles

Feature

July 11, 2018

Global carmarkers announced 90 billion dollars in investment to hit the Electric Vehicle (EV) market in the next five to seven years. The EV market is at a “no turning back” inflection point, as OEMs have already committed investment in battery and component plants, and other R&D technology.

How will that shape the future of the EV market and what value will it bring to consumers?

Electric Vehicles and Sustainability

The United States, alongside China and the European Union, are cracking down on pollution and gas mileage, which will impact EV adoption in the next five to ten years. China and the European Union primarily have a pollution driven agenda – they want to “clean up” their carbon footprint.

For the United States, pollution plays a role in the agenda, but the focus is to become less energy dependent on foreign resources. The U.S. is the biggest importer and exporter of energy in the world, with states like California leading the push to improve energy efficiency for the internal combustion engine, and the overall transition to electric batteries.

Special interest groups like state electricity providers have their own agenda. Providers have enjoyed a dominating and prosperous reign, but they’ve watched grid consumption drop and are looking for ways to spark demand as consumers become more conscious about their energy footprint. EVs may be the perfect solution to their problem, as in-home charging solutions become increasingly less expensive to install for the consumer. Companies like PG&E in California have been involved in EV funding to help fuel EV growth, knowing it can positively impact their bottom line.

Who Will Use Electric Vehicles?

For OEMs and fleet managers, it’s much less costly to manage a fleet of EVs opposed to gas guzzlers. OEMs have a long history of influencing policy decision in the states, so a push for EVs is a natural part of the autonomous strategy. Volvo has stated that it will only produce EVs after 2019, and GM plans to have 20 EV models on the market by 2023, largely phasing out gas vehicles.

For consumers, the question has always been – is an Electric Vehicle really less expensive than purchasing a gas-powered car? Marketing fluff aside, the answer has been no. Today, it's still fairly expensive to purchase an EV, even with a Federal rebate.

“In 2010, a lithium-ion battery cost $1,000 kilowatts per hour. That number dropped by 70% in 2015, and by 2025, will eventually cost the same as an internal combustion engine,” says Ammons.

“Today, EV buyers already realize a lower cost of maintenance and fuel than gas vehicle owners. But in 2025, consumers will be able to purchase an EV for the same price as its gas-powered equivalent, even without a subsidy. By 2030, consumers will be able to purchase an EV for 30% less than the gas-powered equivalent vehicle, according to recent Bloomberg research.”

What Does This Mean for TPAs?

With no internal combustion engine, there will be a drastic reduction in the number of “at risk” components typically associated with warranties and vehicle service contracts. Goldman Sachs did a study that showed that the car of tomorrow will have about half of the components than the car of today.

On the flip side, the cost of electronics inside the vehicle is predicted to be greater than 30% by 2030. With that kind of tech hitting the streets, consumers will certainly need vehicle service contracts to reduce the risk of investment.

That’s certainly good news, but what about prepaid maintenance, GAP, tire and wheel, and other ancillary products? Will consumer demand to upgrade vehicle technology mirror that of today’s smartphones, and would that be managed through a maintenance plan?

Businesses who can anticipate the impact of regulatory policy decisions and OEM production trends, and develop plans to diversify their product portfolio will be well positioned to succeed in the future.

Email us to let us know your thoughts on trends that are shaping the auto industry, or how our product development team can help you draft a Vehicle Service contract for EVs.